ESIP European Conference 11 December 2006 Social Security, Employment and Mobility in the EU

1. ESIP European Conference 11 December 2006 Social Security, Employment and Mobility in the EU Improvement of portability of complementary pensions Hagen Hügelschäffer Secretary General

2. Contents I. Proposal for a directive on the improvement of portability of supplementary pension rights II. Matters in difference III. State of play IV. Further developments

3. I. Proposal for a directive on the improvement of portability of supplementary pension rights Issued on 20 October 2005 after appr. 15 years of discussion.Applicable both to private and to public pension institutions (apart from schemes covered by the Regulation (EEC) 1408/71 – Art. 2) Main rules: Art. 4 – Conditions governing acquistion (e.g. minimum age of 21, membership after one year of employment, vesting period of 2 years) Art. 5 (1) – Preservation of dormant pension rights: „Member States shall adopt ... measures…in order to ensure a fair adjustment of dormant pension rights...“ Art. 6 – Transferability: Elimination of penalising outgoing workers Art. 7 – Information for scheme members

4. I. Proposal for a directive on the improvement of portability of supplementary pension rights Art. 9 – Implementation: • 1 July 2008 • Exemption: by 1 July 2013 for the vesting period (Art. 4 lit d) • Exemption of unfunded or underfunded schemes (e.g. pay-as-you-go schemes) by the end of 2018 (Art. 9 (3) in conjunction with Art. 10 (2)) • Delegation to the Social Partners

5. II. Matters in difference • Cost burden (up to 35% additionnal costs) –> danger for existing schemes (sponsored by employers) Permission and scope of exemptions Implementation of rules of transfer (i.e. transfer of the entire cash value only; neither a partial transfer nor transfer of pension rights) • Violation of the principle of Subsidiarity(Art. 5 EU-Treaty in conjunction with the protocol about the application of the principles of subsidiarity of 1997) • Respect of the relationship between EU- and intrastate law • Cross-border cases • Protection of the structure and functionality of national legal systems Need of such a directive? –> Protection of existing pension rights versus futher spreading of supplementary pension schemes?

6. III. State of play 1. European stakeholders: negative by the majority • European Economic and Social Committee (Art. 257 ff. EU-Treaty): support of the proposal of the Commission with the following additional proposals (position paper of 20 April 2006): • Abolishment of any entry barrier – but consideration of schemes financed by employers • Unification of tax rules within Europe • Unification of rules relating to supplementary pension schemes • Transfer without penalising employees • Vital role of Social Partners desired

7. III. State of play • European Parliamenta) Committee on Economic and Monetary Affairs • Modification of the principle of „fair adjustment“ (Art. 5) • Only transfer of the capital value (instead of pension rights) • Cost/benefit analysis by the Commission 5 years after entry into force b) Committee on Gender Equality • Cancellation of special rules inter alia for under- and unfunded schemes

8. III. State of play c) (Leading) Committee on Employment and Social Affairs Draft of a progress report of its rapporteur: • Modification of the scope (including book reserves and PAYG systems without any exceptions) • Art. 5: „fair adjustment“  equal treatment of leaving workers with pensioners • Application only for new entitlements after entry into force • Shorting of the transition period (24 instead of 60 months) for vesting periods

9. III. State of play 4. Council of Europe • Evaluation by the Social Questions Working Party • Improvement of unclear wording • Identification of matters in difference: „political questions“ e.g.:- „Fair adjustment“ (Art. 5)- Conditions governing acquistion (Art. 4 – key questions)- Role of the Social Partners- Permission and scope of exemptions (Art. 9 (3))

10. III. State of play • Orientations of the Member States within Council- Full support, no exemptions: GB, IRL and NL- Fear of reduced freedom of Social Partners: Scandinavian countries- Few concerns due to minor spreading of supplementary pension schemes: southern and eastern countries- Concerns because of unfunded and PAYG-schemes: DE and Lux; however also widespread in FR, PT, SF, AT

11. III. State of play • Progress report of the Finnish presidency of 15 November 2006 - Summary of the consulations + proposal of a modified text of the directive - Questions for Ministers‘ debate on the 2 most crucial issues:1. Shift of the focus from transferability to the preservation of dormant pension rights ( transferability to be ruled by national law) 2. Scope of this directive; especially in view of longer transition periods of 120 months ( financial aspects)

12. III. State of play • Proposal of a modified text of the directive - Minimum age = 25 years; vesting period = 5 years, competence of Social Partners to lay down different rules - „Fair treatment“ instead of „fair adjustment“; i.e. treatment of dormant pension rights by reference to various measures (e.g. inflation, wage levels, pension benefits, rate of return on assets of the scheme)- No rules about transferability- Transition period of 120 months- No further exceptions foreseen

13. IV. Further developments Ongoing debates within the Council on the basis of the above mentioned progress report Vote in European Parliament – EMPL-Committee – has been postponed to beginning of 2007 (190 proposal for amendments) Transferability will be ruled through a recommendation ? Entry into force requires unanimity of all Member States and majority within the European Parliament

14. EAPSPI at a glance 21 public sector pension institutions out of 14 European countries 26 mio. employees and pensioners www.eapspi.eu eapspi@versorgungskammer.de